Lake Oswego Fire DepartmentLake Oswego fire fighters participate in a 2004 training exercise at a home owned by Chris Dudley that they eventually burned to the ground.

Republican Chris Dudley didn't hear any complaints from the Internal Revenue Service when he claimed a $350,000 tax deduction six years ago for allowing the Lake Oswego Fire Department to burn down a house he wanted to demolish.

But it's apparently not something you'd want to try with your home anymore.

The U.S. Tax Court last week threw into jeopardy the practice of claiming a big tax break for donating an unwanted home to fire departments for training purposes. The court ruled in a Wisconsin case that a couple who claimed such a tax break failed to show that their donation was actually worth more than the demolition benefits they received.

Dudley, who lost a close race for governor last week, defended his use of the tax break after it became public in October. Aides say he wanted to help out the fire department -- which used the home for a series of training exercises before burning it to the ground -- and that tax professionals advised him the deduction was legal.

After the home was razed, Dudley subsequently built a larger home on the land adjoining the Oswego Lake Country Club that he and his family now occupy. Aides say he was never audited about the tax deduction and the time for challenging it has passed.

In a 1973 memo, the IRS had allowed taxpayers to take a charitable deduction for donating homes for fire fighter training. But in light of later court rulings, the IRS began new scrutiny of the tax breaks and began challenging some homeowners starting in the late 1990s.

The court said the homeowners, Theodore Rolfs and Julia Gallagher, "have not shown that the market value of the property they donated exceeded the market value of the benefit they received in turn."

The court disallowed a $76,000 tax deduction claimed by the homeowners after citing evidence that the home had virtually no value if it was moved off the property. In fact, the court said, the homeowners appeared to save an estimated $10,000 in demolition costs by having the house burned down by the local fire department.

The tax court rejected an attempt by the IRS to also assess penalties against the homeowners, saying the couple acted in good faith in relying on the 1973 memo from the agency.